Bank of America, who manages more debit cards than any other US Bank, must reposition its strategy with Debit Card pricing. Their large portfolio of debit cards linked to consumer checking accounts has been in a spin since 2Q2011, when revenue for the card business fell to $1.9 billion, down from $2.5 billion the prior year. It was not just Dodd-Frank. An important factor for the revenue decrease preceded the price controls of the Dodd-Frank Act. Recall the 2009 Federal Reserve Bank revision to Regulation E which severely limited the bank’s ability to assess bounced check fees; that change removed billions of fee revenue for the industry.
Now, enter the Dodd-Frank Act. With such a large portfolio base, BoA has about $2 billion in incremental risk for the year. Realistically, the large banking firm has a responsibility to its stockholders to produce an effective return. BoA is certainly revisiting their business model, along with every consumer bank in the US. Some are testing various programs in specific states while others are testing lower fees closer to $3. Unfortunately, the most recent movement of $5 fees by BoA was massive and high priced. A rough assessment is that this single change offset nearly all the risk for Dodd-Frank. Moreover, that does not even include the other fees they will continue to charge for other punitive and usage fees. Can it be said the industry is morphing regulatory price controls into profit making revenue streams?
Regulations are the driving factor for these reactions and at the end of the day, the consumer will likely pay as much, if not more, than they did before. As far as rethinking models, it is very appropriate for banks to do so, though it would make sense for longer-term strategic planning rather than knee jerk reactions. Think about the airlines, who now charge for checking baggage on trips where you obviously will need to take clothing. And, NetFlix? That model has changed twice in as many months.
See more on the reaction of the new fees charged by banks in a recent WSJ article.
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